Softechie, you seem very worried about Mirant, and I can't blame you, given the current market sentiment. As I have said before, one way to reduce risk is to buy the Mirant convertible preferred (MIRPRA or MIR_PA on Yahoo.) IMO, it is particularly suitable for tax deferred retirement accounts. It has a face value of $50, a 6.5% dividend ($3.13 per year), is convertible to 1.82 common shares, and matures in 2030. It is now selling at around $27 and its $3.13 dividend results in a 11.5% cash yield annually -- the yield is higher at maturity because you get back $50 per share. In addition to its convertibility, it is safer than most garden variety preferred issues: It represents shares in a trust that holds a junior Mirant convertible debenture, and thus it essentially has the same safety and rights as the debenture. Its conversion price is $27.50. If Mirant common ever gets there, owning the preferred is like owning the common and also getting a fat dividend on top. If Mirant gets acquired, presumably by a financially stronger company, the preferred will trade at or even above its $50 face value, unless redeemed at $50. So, if Mirant stays at current low levels and thus becomes a takeover target at a relatively low price (say, low teens or below), you will get better appreciation with the preferred.
The risk is that Mirant goes bankrupt and gets liquidated at a value less than its senior debt. Of course, the common will have reached zero value long before that.
Kyros
PS. I have bought the preferred last week. I own a lot more of it than common. Here is the SEC description (on page 4 is the summary):
sec.gov |
